Our long term S&P 500 model states that the U.S. stock market is not in a bear market. We define “bear markets” as declines that exceed 33.33% and last more than 1 year.

Our medium term S&P 500 model has been predicting a significant S&P 500 correction since the end of March 2015. We define a significant correction as either a big correction or a long consolidation.

Neither a big correction nor a long consolidation has been completed as of October 1, 2015. Hence, we are waiting for a significant correction to be completed before we buy stocks.

We’ll cover the following topics in this post:

Is there something wrong with the U.S. economy?

It’s seems that there’s something wrong with the U.S. economy.

Cullen Roche from PragCap describes the current situation perfectly:

There has been so much conflicting data in recent weeks.  Housing data has been strong, jobless claims are near lows, ADP employment was strong, manufacturing is weak, auto sales were through the roof, the Challenger Job Cuts report showed labor deterioration, etc.  But this has been the story of the last 7 years.  It has been an uneven muddle through.   This economy remains very weak despite what some of the headline figures say.  And that’s one reason why I am so skeptical of a recession right now.  It’s hard to die when you’re jumping out of the ground floor window.

We agree that the odds of a recession are very low. Current economic problems are not significant enough to cause a bear market. However, they can cause a big correction like they did in 2011.

U.S. Economic Data is Deteriorating

There are 2 things to note when looking at economic data:

The U.S. economy was on fire in 2014. Actual figures beat previous months’ figures and expectations.

Then the actual figures started to miss expectations but beat previous months’ figures in the first half of 2015.

Then U.S. economic data deteriorated more in the summer. Actual figures began to miss both expectations and previous months’ figures.